مدیریت بانک و انضباط بازار
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|5201||2008||20 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Economics and Business, Volume 60, Issue 5, September–October 2008, Pages 395–414
In recent years, market discipline has attracted interest as a mechanism to augment or replace government regulation of the financial sector and, especially, depository institutions. The ability to substitute market discipline for bank regulation is of much interest and we use a theoretical model to examine it. In a stylized comprehensive model, we incorporate the characteristics of the regulatory structure and examine the effects of different parameters on the optimal decisions of the bank. These parameters include changes in risk, deposit-insurance coverage, and degree of market discipline. Interesting results include the following: (1) an increase in competition should result in less equity financing, higher deposit interest rates, and higher risk premiums (spreads); (2) exogenous shocks, such as an increase in oil prices, will result in more equity financing; (3) the sensitivity of the two types of deposits will react to a change in market discipline in opposite ways. Our theoretical results are consistent with empirical evidence in recent studies.
Stakeholders in a firm can monitor and control the firm's behavior using market mechanisms. The ability of stakeholders, including debt holders and stockholders, to influence the cost and quantity of funds available to the firm and the valuation of its assets provides a market-based structure for corporate governance (market discipline). Market discipline is considered optimal for corporate governance, as is evident in unregulated industries. However, this paradigm of governance, particularly when employed by debt holders, may not apply to financial institutions and, especially, to highly regulated depository institutions. Since most liabilities of smaller or medium depository institutions are deposits or privately held debt that are not traded in the market, debt holders lack opportunities to examine the performance of managers and, therefore, cannot exercise market discipline. This information asymmetry is a particular problem for depository institutions, since bank managers practice the opaque business of making confidential bank loans. Moreover, the same government that does much to govern these institutions by means of regulatory and supervisory mechanisms also guarantees a large part of the depositories’ liabilities. Wherever deposit insurance is in effect, depositors have no incentive to monitor the bank. The information asymmetry and lack of incentive to monitor have been widely noted, prompting many observers to ask how market discipline can be applied to financial institutions. Depository institutions are highly regulated to protect against the disruption of the unique services they provide and to avoid the social costs (negative externalities) that such a disruption would impose on the economy.1 In recent decades, many countries have experienced an upturn in financial instability in the form of financial crises, including banking and currency crises.2 Further, financial institutions have become more complex in recent years due to financial innovations and the widening of their scope of activities. It has become apparent that traditional regulatory and monitoring mechanisms are either poorly applied or intrinsically inadequate. Indeed, Demirguc-Kunt and Detragiache (2002) find that deposit insurance is detrimental to bank stability.3 Because of these developments, market discipline has attracted the interest of academics, regulators, and bankers as a mechanism that may be used to augment or, to a certain degree, replace government oversight of the financial sector. Indeed, the Basel II Capital Accord is about increased disclosure and market discipline. Its author, the Basel Committee on Banking Supervision, “emphasizes the potential for market discipline to reinforce capital regulation and other supervisory efforts in promoting safety and soundness in banks and the financial system.”4 The literature on market discipline in banking focuses on policy issues and discusses various proposals, such as mandatory subordinated debt (Crocket, 2002). The empirical literature looks at the effect of bank risk on several available market measures.5 The theoretical literature is quite limited; most of it argues that the best way to improve market discipline and reduce costs of deposit insurance is to require banks to issue subordinated or other uninsured debt (Calomiris and Kahn, 1999). More recently, Blum (2002) demonstrates the ambiguous effect of subordinated debt on risk taking by the bank. A related area of research, both theoretical and empirical, is deposit insurance. The literature in this area parallels the research on the default risk of bonds and reflects two main approaches: structural and reduced-form.6Falkenheim and Pennacchi (2003) employ a structural-approach model in their study of the cost of deposit insurance. Fan, Haubrich, Ritchken, and Thomson (2003) use a reduced-form approach to value a bank's subordinated debt. Keeley (1990) argues that the method of fixed-rate deposit insurance in the US encountered major problems starting in the 1980s because increases in competition caused bank charter value to decline. This decline, in turn, gave bank managers incentives to increase their default risk. Our study includes aspects of both areas of research: leverage as a measure of risk and the existence of uninsured bank liabilities. It attempts to fill a gap in the literature by modeling market discipline within the framework of optimal bank behavior. Market discipline has a number of meanings in the literature. Study Group (1999) distinguish between direct and indirect effects of the market. The direct effect is the influence that investors exercise on bank risk-taking by affecting the cost and/or quantity of funds: Flannery (2001) refers to this as market influence. The indirect effect is the interaction of supervisors’ information with that of the market. For our purposes, market discipline is the direct effect of the risk of the bank's assets and its capital structure on the cost of its uninsured funds. We measure the degree of market discipline as the sensitivity of the cost of uninsured deposits to changes in the capital structure. Government regulation is introduced into the model via deposit insurance. The paper contributes to the literature by offering a simplified model that evaluates the combined effects of market discipline and regulation. The model allows us to examine the effects of several parameters – market competition, deposit insurance coverage and price, degree of market discipline, exogenous shocks, etc. – on the optimal decisions of the bank.7 Our theoretical results are consistent with existing empirical findings. Thus, the model can serve as a theoretical framework for explaining bank management decisions and the effects of market discipline. Some of the interesting results obtained are as follows. (1) An increase in competition in the deposit market due to changing market conditions causes the interest rate on deposits and the spread to increase and equity financing to decline, with implications for capital-adequacy policy. The main developments in the banking industry in the last two decades – deregulation, globalization, and improvements in information technologies – all tend to increase competition in the financial industry. In the US, interstate-branching and product deregulation in the 1990s had a significant effect on bank structure and competition.8 This makes our study, which examines the effect of such changes from a theoretical perspective, particularly timely. (2) An exogenous shock (such as a sharp rise in oil prices) causes equity financing to increase relative to deposit financing. The increased volatility of real and financial assets makes such events more frequent. (3) Our study shows that market discipline may be a practicable substitute for bank regulation, at least in part. The substitutability of market discipline for bank regulation is of much interest, as evidenced by the third pillar of Basel II, which outlines the steps necessary to promote market discipline in the banking market. The paper is organized as follows: Section 2 presents a model of a bank that has optimized its assets structure and therefore manages only its liabilities. We derive equilibrium values from the first-order conditions as well as from the results of a comparative-statics analysis with respect to several parameters in our model. Section 3 relaxes the assumption of fixed assets and considers a bank that manages both its assets and liabilities (ALM). In both sections, the results are calibrated with empirical findings. Section 4 presents the main results and concluding remarks.
نتیجه گیری انگلیسی
This paper focuses on market discipline, which we define as the direct effect of the riskiness of a bank's assets and capital structure on the cost of its funds. We suggest that the degree of market discipline be defined and measured as the sensitivity (elasticity) of the cost of uninsured deposits with respect to the capital structure adjusted to the risk of the bank's assets. It turns out that the degree of market discipline plays an important role in the management of banks. Within a stylized comprehensive model of the optimal behavior of a bank, we incorporate the characteristics of the regulatory structure and market discipline. Government regulation is introduced via deposit insurance that is provided to some depositors. We examine and derive the effects of several parameters on the optimal behavior of the bank and relate them to recent developments in US banking. Our main results are: (1) an increase in the insurance premium, or the adjustment of this premium to risk, will result in an increase in equity financing and a decline in interest rates paid on deposits; (2) an increase in market discipline and a decrease in risk (an increase in probability of solvency) will have a similar effect. By the same token, an increase in the cost of equity and an increase in competition in the insured-deposits market will cause equity financing to decline and the rate paid on insured deposits to increase. We also derive the effect of the parameters on the quantities and composition of deposits. An increase in the risk of the bank, the introduction of a risk-adjusted insurance premium, and an increase in competition in the insured-deposits market will cause a reduction in the share of uninsured deposits (and increase of insured deposits) of the bank. An increase in the insurance premium (charged on all deposits) and an increase in market discipline will result in an increase in the optimal share of uninsured deposits. Our results also demonstrate the existence of a substitution relationship between market discipline and bank regulation—an issue debated in the recent literature. To make the model tractable, we offer some simplifying assumptions. The main results (the effects of the parameters) obtained under the constrained model, in which the bank manages only its liabilities remain valid under the more general model in which the bank manages both its assets and its liabilities. Furthermore, most parameters have similar effects on loan interest rate rL and deposit rate r0 under the extended model as well. In most cases, the analytical results of the models are compatible with existing empirical findings. Therefore, they may serve as a theoretical framework for explaining bank-management decisions and analyzing the effects of market discipline.